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Companies Petition Obama For Tax Amnesty To Repatriate Cash, As Myth Of "Cash On Sidelines" Crumbles
About a month ago, when discussing the debunking, for the latest time, the biggest lie in modern history, namely the massive exaggeration about the corporate cash on the sidelines, we noted: "Our advice to all those who like blind lemmings follow the advice and chase the "cash hoard" - think, and do your homework first. If indeed over a third of the record cash holdings are foreign, they are as good as useless to shareholders." The reason for this: a major portion of the billion or so dollars in cash is held abroad and "repatriating this cash to the good old USA would cost companies hundreds
of billions in US corporate taxes. That's right: even though companies
are taxed abroad, the issue of double taxation is resolved by
subtracting foreign taxes paid from the US tax liability. However,
because foreign corporate taxes are typically lower there is an adverse
tax consequence associated with remittance to the parent company.
In other words, of the $1.2 or however many trillions in total
corporate cash on balance sheets, a good 30% chunk of this belongs to
Uncle Sam if these companies wish to use it for domestic IRR purposes.
And yes, just so there is no confusion: using foreign cash to pay dividends or share repurchases is considered repatriation from the perspective of US tax regulations." And now that the cat is out of the bag that the huge cash hoard is really about 30% less, here come these very same multinationals begging Obama for tax amnesty so they can actually bring the cash home and, gasp, use it. Too bad this request will never fly, and why even CNBC may soon (with a few cartoons), understand just how stupid they sound in pumping the hollow cash on the sidelines argument day in and day out.
From the FT:
US multinational companies are clamouring for a tax holiday to repatriate billions of dollars “trapped” overseas but are being rebuffed by Barack Obama’s administration.
JPMorgan research estimates that 30-40 per cent of the almost $1,000bn in cash held by non-financial S&P 500 companies is in foreign jurisdictions.
The treatment of “cash on the sidelines” is becoming an increasingly pointed political and economic issue in the sluggish recovery, with Republicans blaming uncertainty created by Democratic healthcare and financial reforms for companies’ reluctance to invest and create jobs.
But some large groups say that US tax rules are a more important barrier. JPMorgan estimated that for some companies, so-called trapped cash amounts to more than 75 per cent of cash balances. To use the cash domestically, they would have to pay tax, typically of 25-35 per cent.
“We do have overseas cash and we would be very supportive of a repatriation holiday,” said Keith Sherin, chief financial officer of General Electric. “If you think about it, there is a lot of cash trapped overseas. If companies could bring that back at more competitive tax rates, I think it would be good for the US economy.”
And while cash assets may well be non-recourse, the debt is fully US funded, and explains why a cash cow like Microsoft had to issue debt despite having quadrillions in cash.
Sceptics, including in the administration, say the cash level alone is not a good guide to investment firepower as it ignores corporate debt levels. They also warn that Congress could raise hopes of more tax holidays; that repatriated cash might well be paid to shareholders rather than lead to job creation; and that a lack of investment is not the most pressing economic problem. The Treasury declined to comment.
“Some of our clients tell us that this issue is among the most distortionary elements of their financial policy,” said Marc Zenner, managing director in the corporate finance advisory group at JPMorgan. “It interferes with the optimal allocation of capital, restricting the use of that cash for strategic transactions or to return funds to shareholders.”
We hope that as more of the mainstream media comes to the conclusion we had on Zero Hedge a month ago, the straw man bullshit argument of record cash will finally be put to rest. And as the thesis is playing out exactly as expected, we would once again like to suggest the trade we proposed last time we discussed this topic: "buy CDS in IG/XO companies with lots of foreign cash and hedge
DV01 with CDS in those companies with domestic cash, preferably at same
level. Then sit back and wait for the divergence."
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But but but . . . Steve Liesman just said again (for the zillionth time) that the Fed is printing money so businesses will have low borrowing costs to make investments and create expansion. And to make up for the $5 Trillion lost in the shadow banking shrinkage. Boo hoo!
I filled a bucket crying sad tears for Steve as well about the loss of imaginary credit functions built to force private businesses into borrowing at higher costs than the average household...
I'm surprised nobody has talked about that. While a billion dollar company can walk up to the window and get a zero percent line of credit. A business worth a nickle less is able to shuffle together a deal about as good as a loan shark combined with the worst credit vehicle aspects of American Express/Discover Card
Dental office, S-Corp. Best I can get is 8.1%, with exceptional credit, on a 10 yr note. Need a loan? Puuhhhhlleease.
Dental office, S-Corp. Best I can get is 8.1%, with exceptional credit, on a 10 yr note. Need a loan? Puuhhhhlleease.
What a racket , after giving a "contribution" he will give an exemption.
This will happen. Corporate execs need bigger bonuses and hopey is a wimp.
Hopey McChange = Mosquito Balls...
Surely someone, somewhere somehow benefits from punitive taxation and the artificial barriers to capital flow it creates.
We call those people politicians. At least in polite company.
does sort of negate the point of taxes..
Ash on the sidelines?
http://cache2.asset-cache.net/xc/79122897.jpg?v=1&c=IWSAsset&k=2&d=74F41EE2615486B6D70E515A05ED757566EA4AA166099C5C
Great Job ZH. You were all over this awhile ago.
They should pay their taxes, interest and all penalties connected with avoidance schemes.
The rest of us do.
Said the Jews in the death camps: "Those escapees should come back and take a harsh beating, and then be starved and worked to death. The rest of us are."
Only the US treats its expats and companies this way. No other country in the world forces their citizens to pay taxes on money made abroad, while not using their services.
Everyone uses the US Navy ...
I'd rather not have a Navy and pay for a merchant marine. It costs a LOT less, is more effective against piracy, and can't be used to aggress against other countries (aside from the occasional drunken bar fight on foreign shores).
whether they want to or not!
And I will tell you from experience that the Foreign Tax Credit rarely allows 100% credit for foreign taxes paid ... it was even worse when the AMT had a limitation to the FTC that guaranteed it would never be more than 90% because, as one Congress Critter put it, expats are usually the rich people who can afford and should pay for the services they use (ostensibly the US Navy).
The Congress Critters also don't get it that by making it that much more expensive and difficult for employers to send US nationals on assignment, it only reduces the opportunity for US nationals to influence and direct business in ways that benefit the US. Other countries, like the UK, dominate in a number of markets simply by reason of installing their nationals there with tax policies that are friendly to both the employee and the employer.
Finally, for you smartasses who think that way about needing the Navy, you have no idea what it is like to have a target painted on your back in most of the world simply because you carry a US passport and therefore need the Navy. And on the best of days if you are in trouble you will be hard pressed to get meaningful support from your local consulate, who are usually overwhelmed with visa-seeking foreigners flooding them to take your jobs.
Don't forget the "other side" of this: All that cash is propping up the EU and Asia.
If you let that cash repatriate (like in a "tax amnesty"), then those economies go BOOM.
Everything is overvalued. The ship is top-heavy (there is not enough ballast). Things get VERY interesting when everybody on deck immediately runs to the other side of the boat to, "look at the *cute* dolphins!"
Not only that over 87% of QE 1 went to foreign governments.
And, we thought it was sitting in our banks..LOL
WASHINGTON—Someone fired shots at the Pentagon early Tuesday, hitting the building and causing minor damage, defense officials said.
Okay, time for ammo inventory count of ZH members...
Um, I dont remember how much ammo I had stockpiled to begin with, really I dont.
Good enough. No inventory irregularities. Noted.
Have you tried today's special?
Duck Soup w/noodles. We supply the noodle soup. You duck if you hear gun shots.
Don't worry, they policed their brass and have already reloaded it. The ammo count will be the same.
"Okay, time for ammo inventory count of ZH members..."
It was Rumsfeld...
But Obummer will use it to have the NSA/FBI arrest and quash dissenters and ZH commenters, shut off the Internet for National security...
Just ahead of the post election, Lame Duck Congress TARP2 and...
The Douche-Bag Dodd "Everything Counts as Notarized on a Mortgage Note" Act...
Too funny and tragic. Multi-nationals use every tax loophole (many designed and sworn into law by their own paid patsies) and pay minimal taxes in relation to their earnings.
SPV this and offshore that. Hide it, use it somewhere else, launder it back, but taxes....never.
Decades and trillions earned/hidden/used/misused and now they want a tax holiday.
It's all beyond strange now. Nice to have a ringside show to such a pivotal time in history though, eh?
ORI
http://aadivaahan.wordpress.com
Well I thought the big deal a year ago was Obama directing the IRS 'crackin down' on these overseas tax scofflaws. I guess theyre his biggest contributors, and the light shall never be shown on Obama.
If they didn't allow such things to happen, those companies would have all left the US entirely, or shut down. THe US has one of the highest corporate tax rates in the world.
The tax rate SHOULD be ZERO, as it was for some 200 years, during most of America's ascension to superpower status.
If the IRS scam is illegal, as I believe it is and as you suggest, even companies should pay no taxes, who should? How does a govt. fund itself?
It started off with Alcohol, Tobacco and Firearms as the only taxable entities (thus BATF).
But BATF were at the head of the WACO mess and so many other messes. But I digress.
No taxes on anyone can only work in a de-centralized system. Small, local communities.
No sir, these bloodsuckers should pay.
ORI
http://aadivaahan.wordpress.com
I guess you missed the part where the United States existed for 150 years with no income tax, and for 200 years without a significant one that applied to everyone.
Governments have plenty of income streams they can tap, assuming they limit themselves to a size that makes them less than 5% of GDP, as the US did right up until 1913 (with 90% of that time spent at 2% of GDP). There's tariffs, there's use fees (think roads for commercial transportation, or exploitation of natural resources on government land), gas taxes, sales taxes, property taxes (ugh!), entrance taxes, tributes (ie money from other countries in exchange for military protection), etc. These are all minor sources, but they are certainly enough to keep up an efficient, non-intrusive government, as has been demonstrated by the US in the past.
Actually I did not, but it's apples and oranges.
Those times are not these times and while your point is well made from a libertarian perspective, it is not and cannot ever be a reality.
And all of those cesses and fees and things you mentioned are a drop in the bucket compared to tax revenue. Not fact checked, but I'm pretty sure it's an order of magnitude.
In addition and to your point, those days national borders (unless the US was yor neighbour) were safe-ish. It was the states where the action was. Again, smaller pie, smaller game.
ORI
http://aadivaahan.wordpress.com
If the Fed was no longer in the picture and their interest-skimming scam was stopped, all interest payments on mortgages, credit cards, business loans, and auto loans would ultimately be channelled into the public treasury, rather than into the private pockets of the Fed. That's a major money-maker right there. Ditch a few unnecessary Federal departments (HHS, Education, Energy, Homeland Security for starters) and you'd have less cash paid out. End the two wars, shrink our borders by closing military bases abroad, and the savings would start to mount.
The mere act of opening subsidiaries abroad does create more than a few higher paying jobs back home, like the massive tax, legal and accounting departments that keep track of those subs, and those people pay taxes. They also spend money in the economy and support creation of other jobs back home. Those people also pay taxes. If the Company pays dividends, most of those recipients also pay taxes.
So insisting on "capturing" 35% up front to "punish the bloodsuckers" ultimately kills the chance to collect as much in other corners of the economy.
ORI, You are truly clueless.
Hey Alarmist, how many cross-national companies have you run? I've run one (as CEO) for three years, in the midst of some of two of the most complex mutual taxation treaty nations.
I know, understand and have worked at Tax Strategies.
You make the bloodsuckers sound like some holy job=happiness and money creating entities.
I suggest you take your blinders off.
Truly Sir, it is you who are without a clue, literally, metaphorically and most especially "real"ly.
I suggest you save your weak barbs for creatures more your size..
ORI
http://aadivaahan.wordpress.com
but...but...then gramma would be out in the streets when she could no longer work just like all grammas in history before Social SECURITY.
I see new share classes/structures for US companies being created in foreign jurisdictions, allowing payout of divis to those entities. Repatriation of the divis then becomes a problem for shareholders, not for corporates. Don't you worry, the IRS will get theirs eventually.
Why would they want to bring that money home? Are things worse where the money is?
In China they have the death penality for fraud and shenanigans contributed by the executive class.
So I suppose, yes it is, for an executive.
only if you're not high enough up in the Party hierarchy. If you are, someone else gets executed for you
How about changing the tax law whereby all earnings, regardless of where earned, is taxed at the regular corporate tax rates (netted for foreign taxes of course)?
If I earn money outside the US by investing and keep those dollars outside the US, I am still required to pay income tax on those earnings.
US corporations should be held to the same standard.
Sounds clever.
Have you thought about the unseen and the unintended consequences?
And, of course, in your thirst for vengeance against Corporate Exploiters of Humanity, you haven't thought about whether theft is really right, have you?
It's just take, take, and take more. Those bastards (meaning the producers who produce the thins you take for granted)!
No thirst for vengeance. Just suggesting that the standards for individuals and corporations be consistent. I would prefer that individuals not be taxed on gains held outside the US.
Now explain your argument to those less fortunate while remembering that no taxes ex-US incentivizes businesses to produce goods ex-US => Jobs.
That makes way to much sense. In America we worship the corporation, and it's taken for granted that corporations actually have more rights than humans (since corporations exist in order to remove humans' rights as to each other).
I guess we should tax foreign citizens and corporations at the same rate then.
Or do you just want to make certain that US citizens are poorer, and US corporations are non-competitive?
For the record, a corporation is a purely government-created and maintained entity. Without government, all a corporation is is a big fat lie (since it's a pretend human being that its owners want you to treat as a real person).
Given that a corporation is a creature created by government, only recognized because of government, yes, we should tax the hell out of it wherever it happens to wander the earth.
If a corporation wants to be free from American government, it should dissolve and re-incorporate elsewhere. Let some other government have the burden of protecting its shareholders.
I agree. But no, the government should not be able to tax corporations. They simply should not exist. The existence of the corporate veil is government aggression against every single person ever harmed by a corporate entity in any way, which is just about all of us.
Driving production away from the US certainly isn't the answer.
Yeah, but corporations by default drive production away from the U.S., because they have no true "home." They only seek the most profitable position, in the abstract. So of course they would prefer to be in some miserable nation full of poverty, helping bring U.S. jobs there. The corporation doesn't care about quality of life.
As a general rule, I lean in the direction you do regarding liberty. However, I've become convinced that the only way to truly get control over government is for government to actually pay for itself, by raising taxes. Cutting taxes doesn't do that, it just postpones the inevitable. If government truly has to pay for itself, then people will start supporting cuts; until then, tax cuts just enable a game of hot-potato, with everyone trying to leach as much from government as they can.
I'm not suggesting that corporations and individuals get taxed at the same rate. Ideally, we'd have lower taxes across the board and much much lower government spending. I am an extreme fiscal conservative so if we could operate with no taxes I would want that.
Whatever the tax rate, corporations should pay the same earned ex-US as they do in the US so as not to incentivize them to take their business elsewhere.
The real problems are included in the link below. Get rid of many of these agencies and we could drastically lower taxes across the board.
http://www.usa.gov/Agencies/Federal/All_Agencies/index.shtml
Yeah, cut the Department of Defense in half, and we would balance the budget instantly, and have us with a surplus we could use to pay down the deficit. I agree wholeheartedly.
Of course, most people who want to eliminate government departments want to first go after those that actually help people, and leave the ones designed for killing and invading for last.
Strictly speaking, it isn't the taxes that are the problem (though they are a burden to be sure), but rather it is the regulation. I have opened several businesses only to have to close them down permanently due to some regulation or another. They create fixed costs that are simply too high for many small business owners to overcome. I quit trying, and went and got a job in research instead. I don't make as much as I made on my own, but I don't have to worry about some government busybody coming and shutting me down.
Cut the regulations, and the companies will return en masse. If it were purely a function of taxes, Europe in general and the Scandinavian countries in particular would have collapsed long ago. They have far fewer regulations having to do with day to day business than the US.
You know I always wondered if the US would ever get crazy enough to "grant" US citizenship to everyone on Earth. The idea being is now the whole planet would be liable for taxes to ol Uncle Sugar. Sure it's totally insane, but so is Uncle Sugar.
It surely looks like the liberal kooks want to secure their places in DC by allowing their constituency to grow in this manner.
What are the odds that the multinationals are - Gasp!... Nationalized?
Notes:
It is important to remember that all government's interference always means either violent action or the threat of such action. Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom. To avert complication's when the preservation of Capital is deemed evasion the fungible nature follows the path of least resistance. I feel this is a Structural Olive Branch for us if we are allowed to be taxed as "priced to meet competion to survive" History suggest's when a system fails the rate falls to a new level to manage the people at a lower tax rate only since they are relieved in percentages of change since in stark reality, peaceful social cooperation is impossible if no provision is made for violent prevention and suppression of antisocial action on the part of refractory individuals and groups of individuals. One must take exception to the often repeated phrase that government is an evil, although a necessary and indispensable evil. What is required for the attainment of an end aimed at is a means, the cost to be expended for its successful realization. It is an arbitrary value judgment to describe it as an evil in the moral connotation of the term. However, in face of the modern tendencies toward a deification of government and state, it is good to remind ourselves that the old Romans were more realistic in symbolizing the state by a bundle of rods with an ax in the middle than are our contemporaries in ascribing to the state all the attributes of God.
"Government is not reason, it is not eloquence -- it is FORCE" -- George Washington
Government force is merely the application of state power. Without power, there can be no force
Soviet power is a myth, a great joke. There are no spare parts; nothing is working — nothing. It's nothing but painted rust. But you, you need to keep the Russian myth alive to maintain your military-industrial complex. Your system depends on Russia being perceived as a mortal threat. It's not a threat. It was never a threat. It will never be a threat. It is a rotted, bloated cow.
If the corps didn't own the US polis, they would offshore their companies. You take Berkshore net of accrued tax liabilities and then tax buffet;s share and I wonder what is he worth "net net"
Hmmm wouldn't it be wild if he granted the tax amnesty? He could get away with it. After all the reds can't call him on it since they are all for crony capitalism. Now his fellow blues might not like it but they are heading out the door in nov anyway. Maybe as part of some kind of compromise bill with the reds next year? Don't know but it is interesting to think about.
Has it occurred to you that this red and blue thing is just another color revolution foisted on us by the CIA?
Well not sure it's the CIA, but of course it's a dance. But forms must be observed. Because the masses still think the parties are against each other and that there is ideology other then serving the oligarchs. This is a play done to keep the people locked in the game and occupied while they are being pillaged.
My favorite aspect to corporate balance sheets is the extra trillion in debt than corps had in 07. All you hear about is "record cash" An extra hundred billion in cash and and extra trillion in debt.....things that make you go hmmmm.
Could firms offer, as a dividend to shareholders, shares in their foreign entities? Which would then be free to pay dividends, outside of the purview of the IRS, to their owners?
or a dividend deposit into a fund/account with a direct VISA/MC drawdown card.
Today marks an important turing point for global markets and the USD strength I warned about has arrived.
http://stockmarket618.wordpress.com
these greedy corporations were so quick to export jobs and plants overseas, now they want a holiday to bring back the cash ?. They knew the rules of the game, they want their cake and eat it too.
These same people say "stop changing the laws and regulations" because of all the uncertainty. Oh, the laws can be changed when you want them to, I get it. Hypocrites.
You shouldn't blame the corporations. They operated within the rules, whether any of us like them or not. The lack of corporate taxes ex-US was an incentive to do business ex-US and now they are simply reiterating this by saying that they'll bring the money earned back if it's not going to be taxed. They're being consistent. It's the rulemakers that created the problem and yes, I am aware of the lobbying which influenced the rulemakers. The system is fucked and needs to implode before a new and better model can be established.
Just ask Microsoft or Oracle about their off-shore
'royalties' units
Boo Hoo.
Numerous Corps deliberately book US sales in accounts that they hold off shore. Why, avoidance of state, local, and federal taxes. Now they come crying?
What a farce. Buck up, pay your taxes like the rest of us.
What I don't get is that these taxes will simply be passed on to customers in the form of higher prices, so why the tears??
Capital flight away from socialist regimes have connsequences
I think there is another reason to why they are wanting to repatriate this money, and it's because of whats happening in the rest of the world. In the US the govt. is pro business, on both sides of the political isle. Even though in other countries they will be pro business, but when the push comes to shove your money is sitting in their banks. And they may be forced to put massive taxes on you pulling your money out in an emergency or make up an excuse to freeze your money in their banks. These people and businesses want to cash out their money into the US without paying taxes so that they wash their money. Most of the billionaires in Europe have a big chunk of their money in other "safe" countries in order to not be taxed and/or not to have the govt. take their money at a whim when in trouble.
Do you think that many of the Greek billionaires had their money in their home country banks, no way in hell.
Multinational corps with stranded cash = small fry
FED, LiqProvs and QE2 = big fish
Small Fry, make way for Big Fish!
We don't need you to meddle with our plan of careful inflationary control. Now, scram!
Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic.
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